Abstract:
The banking industry has experienced some profound changes in recent decades, as innovations
in technology and the inevitable forces driving globalization continue to create both opportunities
for growth and challenges for banking managers to remain profitable in this increasingly
competitive environment. Both internal and external factors have been affecting the profitability
of banks over time. this study was identified and filled the gap by providing information about the
internal factors and external factors that affect profitability. The main objective of this study was
to identify the determinants of bank profitability in Commercial Bank of Ethiopia by taking thirty year data from 1992 to 2022. A descriptive study design was employed. Data was collected
between august 1 to and august 30, 2023 G.C. from commercial bank of Ethiopia and national
bank of Ethiopia. The collected data was analyzed using multiple regression analysis approach.
This study determines different factors that affect profitability of commercial bank of Ethiopia.
Those identified factors are internal (asset, interest income, number of branches, non-interest
expense) and external factors (GDP and inflation rate). In this study it’s found that interest income
has strong positive correlation with bank profitability and followed by branch number. In contrast,
asset, inflation rate and non-interest expense have a negative correlation with profitability. On the
other hand, GDP have moderate correlation. It is advised that the bank extend loans and enhance
loan collection strategies, such as lending for viable projects and keeping collateral, in order to
boost interest income. The bank's profitability is drastically declining as a result of expenses. In
order to improve performance, the bank must cut back on wasteful spending by making investments
in technologies that lower operating costs, in effective management and to grow its branch
network. External factors such as GDP and inflation rate is difficult to manage by the bank though
it affects profitability of the bank. Therefore, the bank should facilitate loans, and service
excellence in order to expand its customer base.
